Big city, big innovation? Evidence from city-county consolidation in China

Innovation has increased Chinese economic growth in recent decades and often occurs in big cities. Our analysis using a prefecture-level dataset from 1990 to 2023 suggests a causal linkage between the development of nationwide urbanization and innovation. With the help of quasi-natural experiment approaches, this paper shows that urbanization led to a significant influence on innovation. Specifically, cities that implemented “city-county consolidation” ( chexianshequ ) were more innovative than others resulting from the agglomeration mechanism. Further, the innovation promotion effect of city-county consolidation has the characteristics of heterogeneity. Although we focus on the Chinese experience, a causal role for urbanization will likely apply to other developing economies that have experienced industrialization and economic transformation.